64 F.

3d 656

NOTICE: Fourth Circuit Local Rule 36(c) states that citation

of unpublished dispositions is disfavored except for establishing
res judicata, estoppel, or the law of the case and requires
service of copies of cited unpublished dispositions of the Fourth
Circuit.
James Edward COZART, d/b/a Cozart Tri-State Tobacco
Warehouses, Pennington Gap, Virginia, d/b/a
Farmer's-Big-Star-Cozart Warehouses, Weber City, Virginia,
d/b/a Banner Star Farmer's Warehouses, Abingdon, Virginia,
d/b/a Cozart Tobacco Warehouses, Abingdon, Virginia;
Southwest Tobacco Warehouses, Incorporated; The Three S
Corporation, Plaintiffs-Appellees,
v.
J. Carlton COURTER, III, Commissioner of Agriculture and
Consumer Services for the Commonwealth of
Virginia; Board of Agriculture and
Consumer Services,
Defendants-Appellants.
No. 94-1442.

United States Court of Appeals, Fourth Circuit.

Aug. 24, 1995.

ARGUED: John Barry Purcell, Jr., Asst. Atty. Gen., OFFICE OF THE
ATTORNEY GENERAL, Richmond, VA, for Appellants. William
Beverly Poff, WOODS, ROGERS & HAZLEGROVE, Roanoke, VA, for
Appellees. ON BRIEF: James S. Gilmore, III, Attorney General, OFFICE
OF THE ATTORNEY GENERAL, Richmond, VA, for Appellants. Frank
K. Friedman, Matthew P. Pritts, WOODS, ROGERS & HAZLEGROVE,
Roanoke, VA, for Appellees.
OPINION
Before RUSSELL, WILKINS, and MICHAEL, Circuit Judges.

PER CURIAM:

The plaintiffs, James E. Cozart, Southwestern Tobacco Warehouses, Inc., and

the Three S Corporation (collectively, the "warehousemen"), are the owners
and operators of burley tobacco warehouses in Virginia. Constrained by
restrictive Virginia regulations that severely limited the rates they could charge
for their services, the warehousemen alit upon an ingenious strategy: they
applied for and received federal licenses under the United States Warehouse
Act ("USWA"), 7 U.S.C. Secs. 241-273, and then filed an action in federal
court seeking a declaratory judgment that the USWA preempts state regulation.
The defendants, the Virginia Board of Agricultural and Consumer Services and
its Commissioner (collectively, the "Commissioner"), have conceded that the
USWA preempts state law. Instead, the Commissioner raised an affirmative
defense challenging the validity of the licenses granted to the warehousemen.
Because the Commissioner made no attempt to challenge the validity of the
licenses through administrative proceedings, the district court did not reach the
merits of the Commissioner's argument and granted summary judgment in favor
of the warehousemen. We affirm the district court's decision under somewhat
different reasoning.

I.
2

The plaintiff warehousemen own and operate burley tobacco warehouses in

Virginia. The warehouses receive burley tobacco from growers and auction the
tobacco at private sales. When a warehouse receives tobacco from growers, the
warehouse employees unload, weigh, bind, and stack the tobacco. The stacks of
tobacco are then stored in the warehouse until they are sold at auction. On the
day of the auction, a sample bale of each grower's tobacco is opened for the
buyers to inspect, and the lot is sold to the highest bidder. The buyer pays the
warehouse, which deducts its commission and pays the remainder to the
grower. The tobacco remains in storage at the warehouse until the buyer's
agents load the tobacco and remove it from the warehouse.

The Virginia Department of Agriculture and Consumer Services regulates

burley tobacco warehouses under Virginia's Commission Merchant Law,
Va.Code Ann. Secs. 3.1-692 to 3.1-722. The Commission Merchant Law
requires licensure of any person acting as a commission merchant. Va.Code
Ann. Sec. 3.1-693. The definition of commission merchant includes any person
"who conducts or operates an auction market, or who shall receive farm
products for sale on commission...." Va.Code Ann. Sec. 3.1-692. Thus, the
burley tobacco warehouses are regulated under the Commission Merchant Law

because they are auction markets. Virginia law also regulates the amount a
burley tobacco warehouse may charge for its services as follows:
4 [operator of] any warehouse in which burley tobacco is sold at public auction,
No
shall charge or receive any commission in excess of three percent of the sales price
of such tobacco, nor shall any basket charge be in excess of twenty-five cents per
basket, which commission and basket charge shall constitute the entire amount
charged by the warehouse operator in connection with such sale....
5

Va.Code Ann. Sec. 61.1-55.

In October 1993, the warehousemen filed applications with the Agricultural

Stabilization and Conservation Service ("ASCS") of the United States
Department of Agriculture ("USDA") to receive federal licenses under the
USWA. The USWA allows the Secretary of Agriculture to license the owners
of warehouses used for the storage of agricultural products. Agricultural
Stabilization and Conservation Serv., U.S. Dep't of Agric., United States
Warehouse Act Fact Sheet 1 (Mar.1992) ("USWA Fact Sheet"). The USWA is
a "permissive regulatory act" because it applies only to persons who voluntarily
apply for USWA licenses. Id. The purposes of the USWA are to provide
depositors with reliable protection, to produce a uniform regulatory system for
storage of agricultural products, to provide warehouse receipts that are evidence
of ownership and can be used as loan collateral, and to require warehouse
owners to accept products for storage without discrimination. Id.

As part of the application process, each warehouseman submitted proposed and

final tariffs to the ASCS detailing its proposed warehouse charges if licensed.
The warehousemen proposed to charge the tobacco growers a one-time storage
and handling charge; although the warehousemen proposed slightly different
rates, the average rate is approximately $7.00 per hundred pounds of tobacco.
The service and handling charge is a flat rate based upon the weight of the
tobacco stored at the warehouse instead of a rate based on a percentage of the
sale price. When the service and handling charges are converted to a percentage
of the sales price, they exceed the commission charges allowed under the
Virginia statute. Nonetheless, the ASCS determined that the proposed charges
are reasonable in comparison to other burley tobacco auction warehouses in
neighboring states. After conducting an extensive review of the operations of
the plaintiffs' warehouses, the ASCS issued licenses to the warehousemen.

On November 9, 1993, the warehousemen filed a declaratory judgment action

in the United States District Court for the Western District of Virginia seeking a
declaration that the USWA preempts Virginia's Commission Merchant Law. In

its answer, the Commissioner conceded preemption but contended that the
warehousemen are not and cannot be in compliance with the USDA regulations
because they operate auction warehouses instead of storage warehouses.
Specifically, the Commissioner alleged that the warehousemen have failed to
comply with the USWA in the following ways:
9 The receipts issued to the growers, in at least seven different ways, do not comply
1.
with the requirements of 7 U.S.C. Sec. 260 and 7 C.F.R. Sec. 737.16.
10The warehousemen release tobacco from the warehouses in violation of 7 C.F.R.
2.
Sec. 737.22 because they do not require the growers to furnish a written statement
identifying the person or persons authorized to order the release of the tobacco
covered by the receipt.
11The warehousemen have not posted in conspicuous places a copy of their current
3.
charges, in violation of 7 C.F.R. Sec. 737.29.
12The warehousemen are not mailing to the growers a copy of the grade certificates
4.
issued on their tobacco, in violation of 7 C.F.R. Sec. 737.45(b).
13

On January 11, 1994, the warehousemen filed a motion for summary judgment,
which the district court granted on March 1, 1994. The district court recognized
that it had no factual issue to decide on the preemption question because the
Commissioner conceded the point. Furthermore, the district court refused to
consider whether the warehousemen possessed valid licenses under the USWA
because the Commissioner failed to exhaust his administrative remedies. The
Commissioner has appealed.

II.
14

This Court reviews de novo the district court's granting or denying of summary
judgment. Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia, Inc., 43
F.3d 922, 928 (4th Cir.1995). Summary judgment is appropriate where the
record shows that "there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

15

The Commissioner has conceded that the USWA preempts state regulation of
the warehousemen. Instead, the Commissioner argues that (1) the
warehousemen's licenses were not validly granted and (2) the warehousemen
have failed to comply with numerous provisions and regulations of the USWA.
We conclude that the Commissioner's arguments do not relate to the subject
matter of the declaratory judgment action. Accordingly, we do not at this time
reach the merits of the Commissioner's arguments or consider whether the

district court correctly held that the Commissioner failed to exhaust his
administrative remedies. Furthermore, we do not consider whether the
Commissioner would have had standing to challenge the validity of the
warehousemen's licenses if he had brought a separate action against the ASCS.
16

Therefore, we affirm the district court's decision to grant summary judgment in

favor of the warehousemen.

17

AFFIRMED.